Microsoft missed revenue expectations Tuesday as the tech giant cited “evolving macroeconomic conditions and other contingencies” for the unfavorable results.
The company reported fourth-quarter revenue of $51.90 billion, short of the $51.94 billion and $52.74 billion it had forecast. Adjusted EPS was $2.34, below the expected range of $2.24 to $2.32.
Microsoft had already revised its fourth-quarter outlook downwards ahead of earnings, citing an unfavorable effect from foreign exchange rates.
In its earnings release, the company also cited “reductions in ad spend,” which negatively impacted LinkedIn, as well as search and news ad revenue in excess of $100 million.
This was in addition to production shutdowns in China, shutdowns in Russia as a result of the war in Ukraine and $113 million in employee layoffs.
Microsoft was chosen this month as an advertising partner for Netflix’s upcoming ad support offering, which the company plans to launch in early 2023. Ad support is expected to be powered by Microsoft’s newly acquired video ad platform, Xandr. Microsoft closed its acquisition of the company last month, calling it “one of the world’s largest marketplaces for premium advertising.”
“Every media and consumer internet company now has a trusted platform for their own ad innovation and monetization. Just two weeks ago, Netflix chose us as its exclusive technology and sales partner for its first ad-supported subscription, a validation of the differentiated value we offer to any publisher looking for a flexible partner to build and innovate with them.” said Microsoft CEO Satya Nadella.
Microsoft has not given any further details about its offering or its partnership with Netflix going forward.
In the quarter ended June 30, Xbox content and services revenue declined six percent year-over-year as a result of lower engagement hours and the monetization of third-party and first-party content. Total game revenues fell by seven percent.
Meanwhile, the company highlighted growth in its cloud business, a core part of Microsoft, which brought in more than $25 billion in revenue for the first time and grew 28 percent year over year.
While shares initially fell after earnings were announced Tuesday afternoon, the stock rebounded following the company’s first-quarter outlook. While Microsoft said it expects trends from the first quarter to continue into the second, leading to continued negative impacts on its ad-based segments, as well as a slowdown in gaming, the company said it expects further momentum in to see his cloud. company, with Azure product growth of 43 percent.